By Ryan Dube and Jeffrey T. Lewis
Argentina's peso had its worst fall in at least a decade and stocks plunged amid investor concerns about the potential return to power of the country's populist Peronist movement, which advocates greater state control of the economy and opposes a landmark trade deal with the European Union.
The peso initially weakened more than 30% against the dollar in early trading after pro-business President Mauricio Macri was dealt a resounding defeat in a primary election Sunday against Alberto Fernandez, a leftist whose vice-presidential running mate is former president Cristina Kirchner, a firebrand nationalist. The peso recovered some ground in the early afternoon and was recently off around 19%, with one dollar purchasing 55.75 pesos.
Argentina's central bank stepped into currency markets Monday, auctioning off $50 million to try to support the peso. The bank's benchmark interest rate jumped to 74%, from 63.7% on Friday, according to local reports.
The Merval index in Buenos Aires was down more than 33% after having jumped 7.7% Friday on expectations that Mr. Macri would do well in Sunday's election, which was mandatory for voters.
Mr. Macri received 32% support versus 48% for Mr. Fernandez, a far bigger win than expected that sets the opposition up for a first-round victory in October's presidential election. The negative economic impact of the vote in Argentina creates further obstacles for Mr. Macri to hold on to power, analysts said.
"This is insurmountable;they are not going to recover from this," said Dardo Gasparré, an economist and political columnist who writes on Argentina "The new government is going to be Peronist."
On the streets of Buenos Aires, Argentines hurting from an economic recession and a surge in prices were bracing for the impact of the market turmoil. A weaker peso often fuels inflation in Latin America's third-biggest economy, currently at 56%, one of the world's highest rates.
"I'm afraid that everything is going to be more expensive," said restaurateur Domingo Gomez, who wants Mr. Macri to resign. "Don't they understand that the people don't want them anymore?"
Mr. Macri told reporters late Sunday that dealing with this week's volatility would be "the responsibility of everyone, especially those who received the most support today."
In a radio interview Monday, Mr. Fernandez blamed the turmoil on Mr. Macri's government, which has taken on billions of dollars in foreign debt since taking office in late 2015 on a wave of optimism in Wall Street.
"The markets react badly when they realize they were ripped off," Mr. Fernandez told Radio 10. "We are living in a fictitious economy...and the government isn't responding."
Still, Mr. Fernandez tried to ease market concerns, seeking to reassure jittery Argentines that his administration would be responsible stewards of the economy. "We were never crazy governing," said Mr. Fernandez, a former cabinet chief. "We always resolved the problems that others created."
If elected, Mr. Fernandez could unravel many of Mr. Macri's policies, raising doubts about the future of a trade deal between Argentina and three other South American countries with the European Union. The deal clinched in June would create a trade bloc of nearly 800 million people, representing a quarter of the world's economy. Though Brazil has the biggest economy in the South American Mercosur customs union that made the pact, it was Mr. Macri who was the most prominent Latin American proponent.
Mr. Macri's likely loss in October "is very negative" for the trade pact, said Benjamin Gedan, an Argentina expert at the Wilson Center, a Washington, D.C., policy group. "The process of even obtaining approvals within the EU would have depended strongly on Macri's diplomacy."
The deal needs approval in Latin America and in Europe, where environmental advocates have raised concerns and farmers worry about competing with the industrialized farming of Brazil and Argentina.
"Classic protectionist fears are resurfacing in South America," said John Clancy, a former EU trade spokesman now with FTI Consulting, a business-advisory firm. "And there are similar aspects in Europe -- that's why it becomes such a difficult deal to see through."
In Brazil, some analysts feared the return of protectionist policies could undercut relations in the Mercosur trade bloc -- which includes Argentina, Brazil, Paraguay and Uruguay -- that reached the trade deal with the European Union.
"If Fernandez wins, it will be harder for Brazil to maintain a much-needed relationship with Argentina," said Thiago de Aragão, from political consultancy firm Arko Advice, who is an expert in foreign affairs.
Mr Macri's standing with voters suffered severely after an economic crisis that began last year amid concerns about the country's ability to pay its debts. The peso lost half its value against the dollar over about five months, while inflation shot up and joblessness rose. Some economic indicators are starting to show small improvements, but gross domestic product dropped 5.8% in the first quarter from a year earlier, and unemployment is still above 10%. Last year, the government received a $57 billion bailout from the International Monetary Fund, the fund's largest ever, to cope with a currency crisis.
On Monday, Ricardo Dabras, a painter in Buenos Aires, couldn't buy material in a hardware store that refused to sell products due to the peso's collapse. "This is crazy," he said. "I don't know what I'm going to do."
Robert Scott III, an economist at Monmouth University who specializes on Latin America, said Mr. Macri's cuts to utility subsidies would likely be reversed in a Fernandez administration. He said a new government might also be quick to implement currency controls that suffocate exporters.
Many Argentines fear a return of those policies that were implemented by Mrs. Kirchner and blamed by most economists for the mess that Mr. Macri inherited. During her eight years in power, Mrs. Kirchner ran large budget deficits and nationalized businesses. Her administration, which ended in 2015, was also mired in corruption allegations. Mrs. Kirchner is currently facing trial for graft, which she denies.
Mariela Beltran, a 38-year-old shopkeeper in Buenos Aires, said she was worried about the return of Mrs. Kirchner.
"I'm going to vote for Macri because I don't see an alternative" she said. "If the Peronists return, the past returns, the corruption."
, Paulo Trevisani, Ira Iosebashvili and Emre Peker contributed to this article.
Write to Ryan Dube at firstname.lastname@example.org and Jeffrey T. Lewis at email@example.com